The news is not good for traditional big brokerages: Online brokerages are gaining market share at their expense, thanks largely to the power of do-it-yourself investing.
New data from the Aite Group shows a drop in the combined market share of wealthy investors' assets held by the big four "wirehouse" firms -- Bank of America's (NYSE: BAC ) Merrill Lynch division, Morgan Stanley's (NYSE: MS ) Smith Barney division, Wells Fargo's (NYSE: WFC ) Advisors, and UBS (NYSE: UBS ) .
That's a little surprising to some observers, who expected that many investors traumatized by the stock market's 2008 implosion would go running to wirehouse advisors. Instead, the growth of lower-cost online brokerages continues. These upstarts grabbed three percentage points more in market share in 2009 and 2010. Of the wealth management industry's $13.5 trillion in client assets, wirehouses still manage 38%, but online brokerages handle 19% -- and climbing.
In recent years, many advisors have left their wirehouses for greener pastures. About a year ago, fully 20% expressed dissatisfaction with their work and intended to be elsewhere within 18 months.
Costs less, performs better
The wirehouses can blame some of this situation on us. For more than 15 years, The Motley Fool has pointed out how traditional full-service brokerages charge investors up to hundreds of dollars per trade, when they could pay $25, $10, or less via solid discount or online brokerages. We've explained that average people can outperform many Wall Street professionals by taking their finances into their own hands. A simple broad-market index ETFs will instantly have you participating in the U.S. or global economy -- and beating gobs of professionally managed investments in the process.
With the wizards' curtains pulled back, more people are seeing that wirehouses high fees and often lackluster performance did them no favors. Investors increasing realize that they can handle their investments themselves, better and cheaper. That's been great for online brokerages such as E*TRADE Financial (Nasdaq: ETFC ) , Fidelity, Schwab (Nasdaq: SCHW ) , and TD AMERITRADE (Nasdaq: AMTD ) .
Do it yourself
That do-it-yourself power is part of a larger trend toward enabling customers to do more for themselves. Skype, for example, permits people to bypass phone companies when making voice and video calls. With the Internet, more people are gathering news on their own, leaving many newspaper companies struggling.
Eastman Kodak's dominance in film came to an end in the digital era, as photo-snappers no longer had to buy (and pay to process) roll after roll. Instead, they're empowered to take all the photos they want, delete the ones they don't like, manipulate photos at will, and print only what they want. The solar power industry has also been disruptive in a way that benefits consumers. Many folks installing solar panels on their roofs are not only covering their electricity expenses, but also selling extra energy back to the grid.
In various ways, Americans are finding ways to take more matters into their own hands, and to profit by doing so. Making 12 stock trades a year at $100 a pop costs $1,200, but at many good discount brokerages , that total will run less than $120. If an investment advisor is charging you 1% on your million-dollar account, he's taking $10,000 each year. You might do just as well for yourself or better by switching to a simple index fund, or carefully selecting outstanding stocks on your own.
Are you settling for your current brokerage, or looking for a better one? Learn about some low-price brokerages with big services.
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